The Apple of the Market’s Eye

By Aoifinn Devitt CFP® – Chief Investment Officer

It is still tech that is the apple of the stock market’s eye at present as the NASDAQ outperformed the S&P 500 and the Dow for the fourth week in a row last week. This came despite the ongoing wrangling in Washington DC around the debt ceiling (on which more below).  The positive growth in retail sales (up 0.4%) was matched by positive numbers in industrial production (0.7%) and manufacturing output (1%), underscoring the resilience of the economy despite ongoing headwinds.

Source: Morningstar as of 05/23/23

Positive earnings and revenue surprises have also characterized the recent reporting season although earnings have declined it was not by as much as anticipated. The market strength remains narrow, however, with the FAANG stocks  – a narrow group of mega cap tech stocks – still representing the majority of the market rise, and other segments, such as small-cap, continuing to trail.  Some commentators have attributed this to active manager managing to market-cap based benchmarks and a sense of FOMO when they reduced their holdings in these stocks at the end of 2022.  These same companies have also been the source of a still resilient company buyback regime – which remains on a par with 2022 by size and by percentage of S&P equity demand higher than 2022.[1]

The debt ceiling discussion among financial commentators has now become a little more animated. The favored comparison period is to 2011, when the debt ceiling was ultimately raised but discussions similarly came right down to the wire.  Our recent white paper detailed some of the opposing objectives as the X date nears is here. and the angst regarding a potential default is being best displayed in the steep rise in one month T bills.  Meanwhile as longer dated rates remain elevated it seems that the expectation of a Fed pivot to lowering rates has now evaporated in the heat of early summer, and markets are back to expectations of a soft landing – which is actually good news broadly – except if you are betting on a rate cut.

So as the summer stretches ahead it seems that the can is being kicked down the road, leisurely, as swell of seasonal leisure spending lifts retail and other spirits. It is all eyes on Washington this Memorial Day.


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